How to launch a syndicate: 1000 years of experience talking

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If I can launch a successful syndicate without showing my face, anyone can do it. - Litquidity



What is a syndicate?

A syndicate is like a deal-by-deal VC firm. It's run by a lead and funded by angel investors or high-net-worth people (referred to as a limited partner or LP). A lead may work with the same investors across deals, but they may not be the same for each deal because LPs might opt in or out. Each start-up investment is called syndicate deal or an SPV.

How does it work?

  1. You discover a start-up that you think is set for growth.
  2. You talk to the founder and manage to secure an allocation of $150k in their fundraising round.
  3. You set up a deal-by-deal investment vehicle (call it an SPV).
  4. You then set about fundraising for that SPV, hoping to fill as much of your allocation as possible.
  5. The SPV then invests all of its funds in the start-up.
  6. When you exit, the funds are allocated as per the structure of your waterfall. Typically this means that investors get 100% of their funds back, and then split the remaining amount 20% for yourself and 80% for your investors.

Why would an investor invest in a syndicate?

Pros

  • Look at more deal flow: if you back 5 syndicates, and they do 2 deals a month, you're gonna look at 120 deals per year
  • Invest smaller tickets: you're starting out and want to write $1k-$5k cheques, which most founders won't take immediately. Through a syndicate, you can write smaller cheques.
  • Be part of the ecosystem, meet new people, network with founders & other angel investors
  • Often no management fee vs investing in a fund
  • Ability to opt into deals that you’re excited about and pass on those you’re not

Cons

  • Lots of work – it's not like investing in a fund & relax, you need to review all deals you are receiving

Why leading a Syndicate is a good idea?

Pros

  • Increase your return by 5xif you usually invest $5k per startup and you find a deal that your network invests $45k in alongside you with 20% carried interest, you’ll get considerably more upside- do the math!
  • You can do it part-time vs managing a fund which is way more time consuming. If you are busy, you can simply not make any deals.
  • Opportunity to build a track record to launch your fund in the future
  • It's easier to convince LPs to invest in a start-up than in your fund.

Cons

  • Lots of work – you’re fundraising for every single deal vs a fund where you fundraise every 2 years

Hard-earned feedback from the battlefield


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Diego Camilleri eSeed.vc

  • Automate as much as possible. I use Mailerlite, Docsend, Notion, Asana, Pipedrive, Zapier and Vauban to automate my back-end. I now spend less than two hours per deal on admin tasks.
  • Launch with an MVP mindset: Don’t overthink it, just define your thesis, find a few good deals and start onboarding investors.
  • Syndicates have network effects, so if your members like the deals you share and how you run your syndicate, they will be the ones bringing new members. In my case, around 90% of new joiners are people I have never met but come from referrals.


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Matt Ward 4ward.vc

  • Start as a scout: Find great deals and refer them as a scout to other syndicates or VCs to build up a track record and karma
  • Work with existing syndicates to co-syndicate their deals to your LP base (which helps you with getting some carry share on great deals and also testing your LP base's willingness to invest).
  • Join other syndicates to get a better idea for how things work and also build your investor portfolio.

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Aksel Piran CP3 Ventures

  • The most surprising part about the first deal we did was the speed at which it happened. We collected interest over three weeks and as it was a hot crypto deal in the middle of the crypto boom early 2020. It was so much more successful than I ever could have imagined.
  • It's a beautiful experience overall and takes your business angel journey to the next level. An amazing way to enlarge your circle of like-minded friends, entrepreneurs, C-level managers and professional investors, that will be your treasure trove!


Vauban’s platform helps you manage every aspect of your Syndicate. Learn more about our offering here!

Ulric Musset